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The yuan hit a record high on Monday as persistent dollar selling by Chinese corporates drove the spot rate to its maximum daily limit under China's managed float regime, after the central bank set an unusually strong official daily midpoint.

The yuan has appreciated 1.0 percent so far this year, reversing a depreciation of as much as 1.6 percent in the year by late July, but the appreciation would have been greater if the central bank had not kept the market in check, either through its midpoint fixes or suspected intervention.

On Monday, the People's Bank of China (PBOC) fixed the midpoint at 6.2920 per dollar, the strongest the yuan has been fixed at since May. On Friday the midpoint was fixed at 6.3012 yuan to the dollar.

The spot exchange rate, which is allowed to rise or fall by 1 percent away from the midpoint on any given day, took full advantage of the new room. The yuan opened at 6.2310 to the dollar before swiftly moving to hit the yuan's strong-side limit at 6.2291. The spot rate had closed at 6.2450 yuan to the dollar on Friday.

It was the yuan's strongest open and intra-day trading level since China opened its domestic currency market in 1994.

The central bank has been trying to restrain the yuan by fixing midpoints that held the market back, but as a consequence the spot rate has repeatedly struck the yuan's strong- side limit every day for over two weeks.

Some market analysts believe the central bank should bow to market pressure by widening the trading band, while others say the dollar selling will subside soon and the central bank can afford to wait until China's incoming new leaders roll out more reforms.

Offshore one-year non-deliverable yuan forwards have consistently forecast depreciation of between 1.6-1.8 percent in the next twelve months.

SUSPECTED INTERVENTION

Traders said they suspect that the central bank was intervening through major state banks to buy up the dollars at the end of last week.

There was a wave of dollar buying from major state-owned banks on Friday, but some traders suspected it was actually intervention from the PBOC to absorb dollars, said a trader at a European bank in Shanghai.

Market participants offer different explanations for the yuan's strength, which has continued despite the dollar's gains against other currencies, reflected in the rise of the dollar index since mid-October. Some